Underwritten by the CPF board, the Home Protection Scheme is a mortgage reducing insurance. While it sounds like a scheme that protects the home, e.g., in case of fire, it is actually a scheme for homeowners. It protects the members and their dependents from being unable to pay the HDB mortgage, when unforeseen circumstances happen, e.g., death, total disability, etc.
How does the Home Protection Scheme work?
It insures the parties who are paying for the mortgage, proportionate to the couples’ contributions. For example, John and Jane pay $1,000 per month for their monthly installment. For illustration’s sake, let’s assume John contributes $600 whereas Jane contributes $400, thus forming a 60% and 40% contribution respectively. John’s HPS cover matches the 60% of his contribution, similarly the HPS covers Jane’s 40%. If John dies one day, his 60% contribution of the home loan is fully covered by HPS. Jane will have to repay the loan by herself, i.e. the remaining 40% of the total mortgage. Both of them can opt for 100% coverage as well, so that if John dies one day, HPS will cover 100% of the mortgage and Jane does not need to pay any more.
It’s compulsory to take HPS up when you pay for your mortgage using CPF, unless you have policies that cover your outstanding house loans such as:
- Whole life
- Term life
- Life riders attached to main policies
- Mortgage Reducing Term Assurance (MRTA)/Decreasing term rider
While it is awesome, there are some things you must take note of when it comes to the HPS. In this article, fundMyLife discusses the features of the Home Protection Scheme.
Features of the Home Protection Scheme
#1 Payment via CPF
Being able to pay premiums via CPF is severely underrated and awesome. Wait, wait, before you pick up the pitchforks to stab us – hear us out here. Paying via CPF frees up cash for yourself to use. It does not eat into your cash since the deduction happens automatically, via your Ordinary Account (OA). This is even more useful if you choose to protect both you and your spouse, i.e. 100% coverage for both parties.
#2 Protection is not immediate
According to the CPF website, your HPS starts covering only when you fulfill four conditions. Firstly, you must be the legal owner of the flat. Secondly, you have to complete the loan application with HDB and are legally responsible for the loan. Thirdly, you have made your health declaration. Lastly, you have paid your first HPS premium. Fulfilling the four conditions will take some time, which means if something happens to you between application and receiving the keys, you won’t get a payout.
#3 Covers HDBs only
HPS does not cover private residential properties, such as executive condominiums (ECs) or privatised Housing and Urban Development Company (HUDC) flats. The HPS is strictly for HDBs, more specifically when you use CPF to pay mortgage. You will have to obtain mortgage insurance if you are buying housing other than HDB flats.
#4 Covers only death and TPD
HPS covers only death and total permanent disability. Under an incident of death or permanent disability, as mentioned above the payout is proportionate to the percentage of contribution of the person who died/have total permanent disability.
However, this also means that you’d have to pay your HDB loans even if you’re suffering from a critical illness, e.g., cancer. To make up for this, you’d have to purchase critical illness plans/riders from insurance companies.
#5 Tied to the flat
The HPS you take up is tied to the HDB that you’re paying loans for. The implication of that is that if you sell your HDB away and get a second one, you’d have to take HPS anew. At a presumably much later age, you’d have to fork out more premiums as well. On the other hand, mortgage insurance from regular insurance companies do not have that limitation. You might want to consider mortgage insurance if selling your HDB is in your future plans.
Connect with fundMyLife financial advisers today!
That’s it for the Home Protection Scheme. We hope you’re better acquainted with its features and possible shortcomings that requires addressing. Need more advice on protecting yourself and your mortgage but haven’t found a good financial adviser?
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